How Major Currency Pairs Might React To The FOMC Decision

Ahead of the critical and much awaited FOMC decision, scheduled for announcement later on Wednesday, the US Dollar remained on the back foot against most major currencies. The FOMC decision on whether to start tapering or not is likely to be the deciding factor for the near-term direction of the US Dollar. Market players anticipate the central bank to announce trimming the size of its bond-purchase program by a modest amount, probably by $10 – $15 billion. A surprisingly larger than expected tapering of its stimulus program by the US Fed is likely to trigger some big up-moves for the US Dollar in the medium-term.

Here is a technical outlook for some important major currency pairs and how they might react to the FOMC decision.

EURUSD

• After an early gap-up opening on Monday, EURUSD continues to hold its neck above the 1.3300 mark. As is visible on daily chart, Monday’s high coincides with a strong resistance zone near 1.3390 – 1.3400 zone, marked by an descending trend-line extending from Oct. 2011 highs through high touched in Jan. 2013. Should the pair manage to decisively break the 1.3400 barrier, the pair, in the very near-future, is likely to appreciate 2013 highs. (1.3710). Round figure levels, 1.3500 & 1.3600, might act as intermediate resistance for the currency pair.
• Alternatively, should the pair struggle to hold the immediate support near 1.3320 – 1.3300 zone, the pair seems to immediately drift lower towards a very strong support near 1.3200 area on the downside. Further, should the pair now struggle to hold and starts trading below 1.3200 – 1.3180 strong support, the pair could be vulnerable to test the 200-day SMA support, currently near 1.3140 – 1.3120 zone.

GBPUSD

• GBPUSD continued with its upward trajectory, aiming 1.6000 psychological mark, after minutes from the Bank of England’s latest policy meeting showed unanimous votes by its Monetary Policy Committee to keep interest rates and the size of asset-purchase facility unchanged.
• The pair, however, continued facing resistance near 1.5960 – 1.5980 zone representing 61.8% Fibonacci Retracement Level of the pair’s move from 2009 high to low formed in 2010. Should the pair decisive break above the immediate resistance, it could strengthen further towards 1.6050 – 1.6060 resistance zone, marked by the upper trend-line resistance of an ascending channel formation on daily chart.
• On the downside, 1.5900 area now seems to provide immediate support for the currency pair. This seems to be closely followed by horizontal support near 1.5860 – 1.5850 zone. Should the pair decisively break below 1.5900 immediate support and fail to hold 1.5860 – 1.5850 intermediate support, it seems to continue depreciating towards 1.5720 – 1.5710 strong support in the near-term. The 1.5700 area also represents the lower trend-line support of the ascending channel formation on daily chart.
• Relative Strength Index (RSI – currently above 75) indicates slightly overbought conditions and hence a corrective move from current levels cannot be ruled out.

USDJPY

• USDJPY continues to hold its neck above 98.90 – 98.70 immediate strong support, previous resistance now turned support consisting of 100-day SMA and 50% Fibonacci Retracement Level of 103.73 – 93.78 downfall.
• Should the pair now break below its immediate major support, the pair is likely to move back towards 97.50 support area marked by 200-day SMA and 38.2% retracement level.
• Furthermore, a decisive break below 98.00 would probably suggest a false break-out above an descending trend-line extending from 2013 high through high touched in July 2013 and could possibly trigger additional weakness for the currency pair initially towards 96.00, Aug. 2013 lows also marked by 23.6% retracement level. The pair then be vulnerable to a fresh round of downward pressure towards testing sub 93.00 level.

AUDUSD

• After climbing above 100-day SMA resistance, AUDUSD currency pair moved above its intermediate resistance near 0.9300 – 0.9310 zone but failed to conquer 0.9400 strong resistance zone.
• Should the pair manage to break through 0.9400 strong resistance zone, it is likely to continue the upward trajectory immediate towards 0.9500 resistance zone representing 38.2% Fibonacci Retracement Level of 1.0582 – 0.8845 downfall. The pair, could then appreciate further towards 0.9700 area in the near-future.
• On the downside, 0.9250 zone, marked by 100-day SMA and 23.6% retracement level now seems act as immediate strong support and is likely to protect immediate downside for the currency pair. Should the pair fail to hold the immediate strong support, it is likely to slip towards the next horizontal support zone near 0.9180 and further towards 50-day SMA support, currently near 0.9100 area.